How to build an emergency fund in Uganda

By Martin Mulindwa Seguya

In an unpredictable economy, a financial safety net is more vital than ever. A reasonably stocked emergency fund is essential for weathering life’s unexpected storms without falling into a cycle of debt. While saving may seem daunting, especially in this economy, it is necessary for financial stability and wealth-building.

What Exactly Is an Emergency Fund?

Simply put, an emergency fund is money set aside specifically for emergencies. An emergency is a “serious, unexpected, and often dangerous situation requiring immediate action”. Think of it as a financial cushion that absorbs life’s blows, allowing you to handle crises without panicking or borrowing money.
Emergencies can vary from everyday to life-changing.
Examples include a broken-down car, a damaged roof, or a sudden illness needing medical care. Unexpected travel for a funeral, especially if a loved one passes away far from home, is another typical emergency.

Without an emergency fund, you might be forced to rely on personal loans or borrowing from friends.
An emergency fund is vital in case of job/income loss.

With companies sometimes downsizing and the economy facing challenges, no one is immune to redundancy. An emergency fund provides a financial cushion to cover your expenses while you look for a new job.

How Much Money Should One Save for an emergency?

To be fully prepared, your emergency fund should be able to cover six months of your essential expenses. These are the basic costs you need to survive, such as rent, food, utilities, and transportation.

They do not include non-essentials, “nice-to-haves” like dining out.
It is essential to adapt this rule to your personal circumstances. If you have a family, own a business, or face a higher level of financial risk, you might want to save more, potentially up to 12 months’ worth of expenses. The aim is to create a fund that provides peace of mind, knowing you can manage any financial shock.

Finding the Money to Start Saving

The first step in building your emergency fund is to create a budget. This isn’t just an exercise in thinking; you need to write it down to see exactly where your money is going and act on it.

-List all your income sources.
-List all your expenses.
-Subtract your total expenses from your income to ascertain a surplus/deficit.

If there’s a surplus, congratulations! You can immediately begin putting that extra money into your emergency fund. If not, you will need to reassess your spending habits. Look for areas to cut back, such as unused subscriptions or unnecessary luxuries. Temporarily reducing these expenses allows you to reallocate that money towards your fund.
If you have cut all non-essentials and still can’t find space in your budget, it’s time to focus on boosting your income. Consider starting a side hustle to generate extra cash.

The Best Place to Keep Your Fund

An emergency fund should be easily accessible but not so readily available that you are tempted to spend it on non-emergencies. It is best to keep it in a separate account, apart from your primary bank account. This “out of sight, out of mind” approach prevents impulsive spending.

Two options to consider are: Centenary Bank’s  Cente Ordinary Savings Account or Centeplus Account .You can open these accounts using your mobile phone without paperwork and start saving within 48 hours at the earliest.
This option is secure and straightforward. It’s perfect for creating an emergency fund and earning interest over time. The risk is very low, and your initial money remains safe.

The other option is a Unit Trust Fund, where you give your money to a trusted institution offering Unit Trusts. The main advantage of this option is that you can withdraw your money at any time without incurring penalties, making it ideal for emergencies.
An emergency fund is not for the rich but for anyone who wants to stay safe when problems or challenging times come knocking at the door.

Start small, even with 10,000 Uganda shillings. What matters is developing the culture of saving often and keeping the money aside. Over time, those small amounts add up and give you a soft landing when the times are tough.
Keep your emergency money in a safe account, away from your daily spending.

Do not touch it unless it is a true emergency. When sickness, loss of a job, or sudden family needs come, that money will help you stand firm. The earlier you begin, the more thankful you will be later.

The Writer is a Chief Manager Personal Banking at Centenary Bank.

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